Demand for cloud-based XaaS and managed services in the Asia Pacific region has bounced back in the first quarter of 2023.
However, figures are still significantly lower compared to the same period in 2022, according to a report by advisory firm Information Services Group (ISG).
The APAC ISG Index – which measures outsourcing contracts with annual contract value (ACV) of US$5 million or more – found that ACV in Q1 for the combined market of XaaS and managed services rose 4 per cent from the previous quarter to US$4.1 billion.
However, this was down 14 per cent compared to the previous year.
A further breakdown for the region showed that both Southeast Asia and Japan began the year with managed services ACV down more than 25 per cent each from the previous year.
Meanwhile, Australia and New Zealand (ANZ) generated US$483 million of managed services ACV in the first quarter – its best quarterly performance since Q4 2021.
Also, India and South Asia was up 32 per cent year-on-year, posting its fourth straight quarter of managed services ACV over US$100 million – the first such streak since 2012.
“Asia Pacific had quite a run in 2021 and 2022, with six straight quarters of ACV over US$4 billion, including one US$5 billion-plus quarter in Q4 2021, before dropping below the US$4 billion level last quarter,” said Scott Bertsch, partner and regional leader at ISG Asia Pacific.
“It’s good to see the market above US$4 billion again, and to see the return of sequential growth after four straight quarters of declining results.”
A deeper dive into the markets saw that the XaaS market grew 24 per cent compared to Q4 2022 to US$3.3 billion but was down 23 per cent from Q1 2022.
As for managed services, it saw a jump of 62 per cent to US$825 million compared to Q1 2022 but was down 37 per cent from Q4 2022.
In the XaaS space, infrastructure-as-a-service declined 24 per cent versus the prior year to US$2.9 billion, although it was up 32 per cent sequentially from the fourth quarter.
Software-as-a-service declined 14 per cent year-on-year to US$380 million and was down 12 per cent sequentially.
Bertsch said softening cloud demand in APAC can be attributed to the Covid lockdown in China, which impacted big providers like Alibaba, Tencent and Baidu.
“These providers have ceded market share to such players as China Telecom, China Unicom and Huawei,” he said.
Within managed services, IT outsourcing in the first quarter soared 74 per cent to US $643 million, and business process outsourcing climbed 32 per cent to US$182 million – in comparison to the prior year.
While the managed services market remains uneven quarter to quarter, five of the last eight quarters have topped US$800 million of ACV.
During the first quarter 57 managed services contracts were awarded, up 21 per cent versus the prior year, but down ‘off the record’ 97 awards made in Q4 2022.
“The last three quarters have seen year-over-year declines in cloud services ACV, with the last two dropping more 20 per cent, putting us in the middle of the biggest sustained decline the XaaS segment has ever experienced in this region,” Bertsch said.
“The market appears to have bottomed out in Q4, so we expect to see positive comps return soon.”